3 Cash Flow Pitfalls & How to Avoid Them
For many distributors, cash flow is the fuel that keeps operations, supplier relationships, and customer orders moving. Cash flow covers day-to-day expenses that make sure the businesses will not find themselves in a bind.
Here are three of the most common cash flow pitfalls distributors face and how to avoid them.
- Slow-Paying Customers
The Pitfall:
Distributors often extend generous payment terms to customers to stay competitive. But when customers take 60, 90, or even 120 days to pay, your capital is tied up, leaving you short on funds to cover inventory, payroll, or new orders.
How to Avoid It:
Implement clear payment terms and follow up quickly on overdue invoices. Better yet, consider invoice factoring, turning unpaid invoices into immediate cash so you can keep operations running smoothly without waiting for customer payments.
- Seasonal or Irregular Demand
The Pitfall:
High-demand periods may require large upfront inventory purchases. Without proper planning, this can create a cash crunch, especially when revenue doesn’t flow in immediately.
How to Avoid It:
Use sales history to forecast demand and align your cash reserves accordingly. If demand spikes unexpectedly, factoring can bridge the gap between purchasing inventory and collecting payment, keeping your supply chain moving.
- Tight Supplier Terms
The Pitfall:
Suppliers often require faster payment than your customers provide, forcing you to cover the gap out of pocket. This mismatch between accounts payable and receivable can quickly strain working capital.
How to Avoid It:
Negotiate extended terms with suppliers when possible. When that’s not an option, factoring can give you the liquidity to pay suppliers promptly building trust and potentially securing better terms in the future.
The Bottom Line
Cash flow challenges don’t have to slow your growth. By recognizing these pitfalls early and using flexible financing tools like factoring, distributors can stay competitive, strengthen supplier relationships, and take on bigger opportunities with confidence.
At Primary Funding, we specialize in helping distributors convert unpaid invoices into working capital so cash flow issues never hold you back.
👉 Ready to avoid cash flow pitfalls? Contact us today to learn more.